Silicon Glen meltdown drags manufacturing into recession

NOT an ending but a staging post, less an event than a process - Lexmark is the latest chapter in a story of retreat and rout for Scotland's electronics sector.

The figures we carry here today from Mackay Consultants show how Scotland's electronics output has been in continuous and unbroken retreat since 2000. Output is down by some 1.3 billion from the peak.

And new figures out yesterday show that due to electronics, Scottish manufacturing output overall is back in recession.

Using the Scottish Executive's own index of production for the electrical and instrument engineering industry, the fall since 2000 is a staggering 43 per cent.

On top of this comes a wave of cutbacks in the opening weeks of the year. US-based Sanmina-SCI is closing its computer plant in Greenock, with the loss of around 300 jobs. And Inventec Scotland Servers announced that it will be ending its operations at Hillington near Glasgow later this year, with the loss of around 370 jobs. Lexmark adds 700 to this bleak January total.

There was one crumb of comfort from the Scottish Executive yesterday. Latest numbers for Scotland's gross domestic product show the economy overall grew by 0.5 per cent in the third quarter of last year and by 1.7 per cent over the past year. So the economy is now growing in line with the UK overall, albeit that the UK-wide growth rate has slowed markedly.

The service sector continues to be buoyant, with property and business services the main driver of the quarterly increase showing growth of 1.3 per cent, followed by public administration, education and health, up by 0.6 per cent.

But while the public sector is booming, output in the manufacturing sector fell by 0.7 per cent in the three months July to September, marking the third successive quarterly decline. A recession is normally defined as two successive quarters of falling output.

Many electronics firms fell victim to the vicious shake-out in the hi-tech sector in 2000-2. But there has since been a strong recovery.

Today's problems are largely a combination of two forces bearing down on UK manufacturers: intense price competition from Asian producers - particularly China and India - and the continuing rise in domestic costs.

Britain, as store giant Tesco, one of our most successful companies, pointed out last week, has become an expensive place to do business.

The latest Confederation of British Industry survey out earlier this week showed that across the UK, total orders fell from minus 22 in December to minus 28 in January.

Some 25,000 manufacturing jobs have gone in the last three months as firms attempt to recover their profit margins in the face of rapidly rising costs.